Central Bank of Sri Lanka

February 7, 2017

Fifty-basis point increases in Sri Lanka’s central bank lending and deposit rates last February and July reversed half of the previous cumulative easing engineered from October 2012 to April 2015. The hikes in 2016 were done to curb excessive demand in order to pre-empt escalation of inflationary pressures and also to support the country’s balance of payments. No further modification of monetary policy has been undertaken since July. The lending and deposit rates remain 8.5% and 7.0% following the latest review by the bank’s Monetary Policy Board. Inflation has risen recently due mainly “to the impact of tax adjustments and the adverse weather conditions.” Officials are comfortable with their belief that inflation this year on average will be in middle single digits. The conclusion is that the monetary policy stance is still appropriate, but the statement adds that “close monitoring of macroeconomic
developments is necessary in the period ahead, with a view to adopting further corrective measures,if required.”

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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